Oracle's Software, Database Sales Drive Growth

Apps and databases are strong, and CEO Larry Ellison slams rivals for having 'nothing' in key business segments.

Oracle's (NASDAQ: ORCL) software business remained strong in its most recent quarter, but hardware sales came in shy of Wall Street estimates.

Oracle reported its fourth quarter fiscal 2011 earnings late Thursday, with revenues of $10.8 billion, a 13 percent year-over-year gain. Net income was up by 27 percent to $3.9 billion. For the full year, Oracle's revenues were $35.9 billion, a 33 percent year-over-year gain. Oracle's Net income for the year was $11.4 billion, a 34 percent increase.

Oracle's gains came in large part from its software businesses. New software license growth grew by 23 percent for the fiscal 2011.

"Our software business is now even bigger than IBM's software business," Oracle President and CFO Safra Catz said on the company's earnings call. "Our North America applications business passed SAP a while ago, and now, if you exclude Germany, we believe we have essentially caught up to them in Europe."

Oracle's core database business is helping to lead the charge for growth, with a 26 percent gain in fiscal 2011.

"That growth rate is twice as fast as any year this past decade," said Oracle CEO Larry Ellison. "We're already more than twice as big as IBM, the former number one and current number two player in the database business, and we're consistently growing faster than IBM and taking market share away from them."

Ellison attributes Oracle's database growth in part to the Exadata hardware business. Ellison said Oracle has installed more than 1,000 Exadata machines and his plan is to triple that number this year. A key part of the value proposition for running Oracle database on Exadata is the fact that Oracle apps run unchanged on Exadata.

"That's very different from IBM Netezza, which does not run Oracle apps or IBM DB2 apps or anything else, except applications that are custom-built for Netezza," Ellison said. "The expansion of our Exadata business and our rapidly growing Exalogic business, plus a couple of new hardware and software appliances we plan to introduce this fall, should turbo charge the overall growth of our hardware business, making the top line and bottom line better than ever."

Ellison also took aim at Salesforce.com (NYSE: CRM) and SAP (NYSE: SAP), contrasting them to Oracle's Fusion cloud strategy.

"Salesforce.com will be facing very, very serious competition, for as Fusion's rolled out this year and SAP has no answers at all, they've got nothing," Ellison said.

"We have a completely rewritten suite of applications built entirely in Java, runs on cloud 2.0, virtual and an elastic cloud that's virtualized, we have technology advantages over Salesforce.com but they got nothing over at SAP," Ellison said. "So we think this is going to be a huge contributor this year and the following year and the year after that, and it's going to allow us to take a significant amount of share from SAP and some share from our friends at Salesforce."

Ellison noted that Salesforce.com is also a customer of Oracle's, which makes for a win-win dynamic for Oracle despite the competition.

"So, when they sell we make money — when we sell ours, we make money. We like that," Ellison said.

Oracle shares were down 4 percent today on the disappointing hardware sales.